Mutations in the PSEN1 gene encoding Presenilin-1 (PS1) are the predominant cause of familial Alzheimer's disease (FAD), but the underlying mechanisms remain unresolved. To reconcile the dominant action of pathogenic PSEN1 mutations with evidence that they confer a loss of mutant protein function, we tested the hypothesis that PSEN1 mutations interfere with γ-secretase activity in a dominant-negative manner. Here, we show that pathogenic PSEN1 mutations act in cis to impair mutant PS1 function and act in trans to inhibit wild-type PS1 function. Coexpression of mutant and wild-type PS1 at equal gene dosage in presenilin-deficient mouse embryo fibroblasts resulted in trans-dominant-negative inhibition of wild-type PS1 activity, suppressing γ-secretase-dependent cleavage of APP and Notch. Surprisingly, mutant PS1 could stimulate production of Aβ42 by wild-type PS1 while decreasing its production of Aβ40. Mutant and wild-type PS1 efficiently coimmunoprecipitated, suggesting that mutant PS1 interferes with wild-type PS1 activity via physical interaction. These results support the conclusion that mutant PS1 causes wild-type PS1 to adopt an altered conformation with impaired catalytic activity and substrate specificity. Our findings reveal a novel mechanism of action for pathogenic PSEN1 mutations and suggest that dominant-negative inhibition of presenilin activity plays an important role in FAD pathogenesis.